Clients think they’re good savers. You can help by showing them they aren’t

This article appears in the March 2021 issue of Advisor’s Edge magazine. Subscribe to the print edition, read the digital edition or read the articles online.

How many of your clients consider themselves to be financially responsible? Of those self-proclaimed prudent fiscal stewards, how many would you rate the same way?

A study published last fall in the Journal of Marketing shows that most people perceive their financial management through rose-coloured glasses. Basically, we all consider ourselves better than average when it comes to saving — which is statistically impossible. These unrealistic beliefs are getting in the way of better saving behaviour, the authors said. “Popping the positive illusion” can go a long way toward motivating clients to change.

That’s because “offsetting people’s inflated perceptions of financial responsibility motivates them to restore those tempered self-views through increased saving,” the authors wrote. In other words, showing clients their irresponsible spending makes them want to correct it so they can go back to feeling good about themselves.

“People have a fundamental need to view themselves positively,” the authors wrote. “This bias leads them to pay attention to, encode, and selectively remember information that supports, rather than disconfirms, those positive self-views.”

Finance is “a prime target for positive illusions” because the financial reality for many people is difficult and stressful.

The authors developed a “superfluous-spender intervention” — a survey — to burst the bubble. The survey asked respondents to rate the frequency of certain spending habits: eating out, buying something they want rather than forgoing the purchase, and buying a branded product instead of a generic one, among others. The responses were scaled to ensure the majority of participants would fall in the upper ends and therefore view themselves as superfluous spenders.

Across six experiments, respondents who received the survey increased their savings more than those who didn’t receive it. As the authors put it, the intervention “motivated people to restore diminished perceptions of financial responsibility.”

The study may be useful for advisors meeting with clients who, one year into the pandemic, have amassed savings. It’s easy to develop habits (ordering more meals, buying more expensive wine or groceries) when clients can’t spend on travel or entertainment. But those habits could be hard to break when lockdowns end. A one-year heat check may make clients aware of how their spending has shifted.

The study also noted that timing the intervention is important. Clients who aren’t in a position to save more following the intervention may feel defeated and inclined to give up. For struggling clients, now is not the time for a reckoning on saving.

“Popping the Positive Illusion of Financial Responsibility Can Increase Personal Savings: Applications in Emerging and Western Markets” by Nicole Mead (York University’s Schulich School of Business), Emily Garbinsky (University of Notre Dame) and Daniel Gregg (University of New England) was published in the Journal of Marketing in November 2020

Mark Burgess

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Mark was the managing editor of Advisor.ca from 2017 to 2024.